RJO FuturesCast

March 27, 2020 | Volume 14, Issue 13

The Markets

Metals - Will Gold Continue to Act as a Safe-Haven Trade?

In the early morning trade, gold has pulled back even more from its weekly highs of $1,698.0 and is currently trading at $1,635.0 a troy ounce. June gold has been in the negative for the whole overnight trading session as investors will have to decide with global cases rising overnight along with the U.S. passing China (if you believe them) and Italy in total cases of the virus if it’s going to continue to be a safe-haven trade/investment, which is being fueled by anxiety.  After being in the red all week, the U.S. dollar is finally in the green, which might cause gold to trade around these levels, but with the $2.2 trillion-dollar relief bill expected to pass the House today we might see a reversal of these two markets. When the bill passes, you would think eventually gold would continue this rally on fears of inflation down the road and it would be valuable to note that even with the shiny one pulling back from its highs that gold is still on track for its biggest weekly gains since the subprime crisis. Furthermore, you would expect the greenback to sell-off due to the largest stimulus package in U.S. history.

I usually say let’s look at the daily gold chart, but this is NOT a technically driven market currently. However, let ‘keep it simple and note that this week’s low is $1,608, which could act as support, and if it breaks the $1,700 an ounce levels, hold onto your longs and enjoy the ride!

Gold Jun '20 Daily Chart
Energy - Oil Demand Continues to Capitulate

Oil fell below $22 in the early session as global demand concerns continue to proliferate due to the corona pandemic, pressuring producers and refiners and comes as the market weighs the potential benefits of stimulus efforts. Global oil demand could fall upwards of 20 million bpd in April further deepening from an expected plunge of 10.5 million bpd in March, which would far overwhelm any supply response. Earlier in the week, the US Energy Department had to rescind offers to buy from shale producers, which would have targeted small to mid-size producers. Storages are starting to fill with inland tanks for heating oil in Germany are full with Pakistan banning oil imports on Thursday. The market remains bearish trend with today’s range seen between 19.59 – 25.39.

Crude Oil Jun '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or aturro@rjofutures.com.
Softs - Cocoa Futures Follow Global Equity Markets

Cocoa futures have been weakened by demand and the global equity markets. As the U.S. and European markets moved higher for back to back sessions for the first time since February, cocoa tried to bounce off a potential bottom in the May contract. Global restrictions and stoppage of work in key regions for cocoa have added to the pressure the market has been feeling. An uncertainty of when certain restrictions will be lifted should cause volatility in the coming weeks. The safety and health of the world is the main concern of everyone and recovery in the markets will occur when limits are lifted at the proper time. For cocoa specifically, any disruption to cocoa operations and exports will affect prices in the short-term. As with all commodities, the supply chain is key right now.

From a technical standpoint, 2300 is resistance, while 2250 is short-term support. Prices that we saw at the end of February should be back once the coronavirus is under control and numbers plateau but in the meantime, the soft markets are weak and vulnerable.

Cocoa May '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or pmooses@rjofutures.com.
Softs - Impressive Rally in May Coffee

Coffee prices have firmed up on a massive rally, primarily based on tighter supplies in Brazil, and issues related to a lack of shipping containers.  Our friends at The Hightower Group have reported of that the “situation may not be resolved soon as several major producers are seeing current supply bottlenecks.”

We continue to see unprecedented levels of volatility as the world struggles to cope with weighing the very realistic free fall of each economy versus that of risking the health of our citizens. Commodities will continue to find unstable ground as the underlying fundamentals bear little (if any) impact on the overall price action we continue to witness these days.

From a technical perspective, the 130 level in May coffee prices should provide strong resistance, and I would expect to see some long liquidation in the short term. This rally and strong price action should be viewed as a potential reversal to the upside in May coffee, but with the continued uncertainty related to the Coronavirus, we should expect a short-term selloff.

Coffee May '20 Daily Chart
Agricultural - Grain Futures Update w/Stephen Davis - 03/27/2020

Stephen Davis discusses the latest movements in the grain markets. According to reports, russia may cancel their wheat exports, which could prop up the market. Unfortuantely now, the only certainty is uncertainty

Agricultural - Soybean Demand Remains Strong

The short-term trend is up, from a technical point of view and the world seems to be getting more comfortable with the idea of owning more stocks of grain then normal. Also, Chinese demand seems to be picking up as the global economy may not be as bad as originally feared. Any logistical problems out of South America will be considered bullish, as well as any weather premium starting to get priced in to the market for planting season. Domestic U.S. soybean meal demand remains strong, with the number of chicks placed for the week reaching a new record last week which will keep short term live stock feed demand on the stronger side. The technical action for the meal market has been very impressive of late, with a 5-day surge that took prices to highest levels since October. Support for the Soybeans comes in at 873 and 866 with resistance at 886 and 892.

Soybeans May '20 Daily Chart
If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-2270 or tcholly@rjofutures.com.
Currency - Wild Ride for Currencies

U.S. dollar futures reached a multi-year high at 103.96 early this week before a linear landslide down to the 99 level on Friday, then bouncing 88 points off the low. The greenback is on pace for its worst weekly decline since 2009. More practically, unprecedented global circumstances have led to extreme levels that have now given way to more reasonable numbers. Foreign currency futures have not been immune to severe volatility as well. To effectively trade these markets, an investor must keep tabs on central bank policy. The worldwide rate-cutting and quantitative easing theme is now in full-force. Loosening monetary policy works to weaken the domestic currency, so the currency that will become relatively stronger will likely be that of the country that does the least amount of economic stimulus. Given the “unlimited QE” coming from the Fed, the dollar is likely to succeed in the game of currency debasement. In other words, a weaker dollar is on the longer-term radar, even if the USD wants to retest its recent high due to safe-haven inflows if panic-selling grips the markets again.

USD Jun '20 Daily Chart
Equity - Stock Rally Fizzles as Week Draws to a Close

It appears the V-shaped recovery we were witnessing over the last few days is taking a bit of a break. Coronavirus news continues to roll in. There’s been some positive news, some negative news, and a whole lot of hysterics. Of note, it was reported earlier that British PM Boris Johnson has tested positive. He says that his case is mild, and that he’ll continue to fulfill his duties via video conferencing while in quarantine. There’s enough news out there to feed whatever narrative you prefer. However, it’s times like these where I think it’s important to take it all in and realize that the truth likely lies somewhere in the middle. There are a decent number of unknowns out there, there will be one off cases, but we seem to have a pretty good grasp as to who is most at risk. Be safe out there. 

The other big story continues to be our government’s inability to come together and get a bill passed. We’ve been hearing things like it’s on the two-yard line and that passage is imminent for days now. One would think that given the circumstances we would be able to get to the heart of the matter and argue politics later. That’s evidently too much to ask for as we’re still arguing over pork spending, completely unrelated political agendas being slipped into the bill, etc.

The stock indices are taking it on the chin this morning, with the Dow futures down about 700 or about 3% heading into the open. I expect some choppy to lower trade as we see some profit taking heading into the weekend along with continued uncertainty about the bill. The rally has been wonderful to quell some of the panic, but I do believe the discouragement phase is likely to come. Whether or not that results in a new low remains to be seen, but I expect it will result in a tremendous buying opportunity at some point.

E-mini S&P 500 Jun '20 Daily Chart


If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or bdixon@rjofutures.com.

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